Analysts: Thailand's rice cartel goal will face hurdles

PolyaLesova

NEW YORK (MarketWatch) -- Thailand's proposal for an OPEC-style cartel to control rice prices will likely face international opposition and only lead to distortions on the global rice markets at a time when the prices of rice and other food commodities are skyrocketing, analysts said.

Thailand, the world's biggest rice exporter, wants to form a rice cartel with four other Southeast Asian countries -- Laos, Burma, Cambodia, and Vietnam -- to acquire more influence over international rice prices, according to media reports Friday.

In the same way that the Organization for Petroleum Exporting Countries (OPEC) sets oil prices, members of the proposed rice cartel would cooperate on prices, thereby wielding their influence.

"Firstly and most importantly, this is not the right time to suggest a cartel," said Arpitha Bykere, an analyst at RGE Monitor

"With the food prices going so high, the World Bank and the United Nations have suggested it's becoming such a big crisis," Bykere said. "The international organizations will oppose this [a rice cartel]."

World Bank President Robert Zoellick has warned that high food prices are threatening recent hard-won gains in overcoming global poverty and malnutrition. The United Nations World Food Program has said that high food prices are creating "a silent tsunami" threatening to plunge more than 100 million people on every continent into hunger.

Soaring prices for agricultural commodities, including rice, wheat, corn, and soybeans, have stirred popular discontent and demonstrations around the world.

In response, Vietnam, India, Egypt, and Cambodia have imposed bans on rice exports. Thailand, the top rice exporter accounting for a third of global exports, is currently not banning or restricting rice sales.

Rice prices have tripled this year, with Thailand's benchmark 100% Grade B white rice soaring above $1,000 a ton for the first time last month, according to media reports. On the Chicago Mercantile Exchange, rough rice futures have surged over 95% in the last 12 months.

A rice cartel?

A spokesman for the Thai government said that the prime ministers of Thailand and Burma discussed the cartel idea on Wednesday, the BBC reported Friday.

Cambodia has expressed support for the idea of a rice cartel in the past and Laos has indicated it would seriously consider the idea, the BBC said.

However, Vietnam officials were quoted by The Bangkok Post newspaper rebutting Thailand's claim that a rice cartel was close and saying that Vietnam hasn't made any official reaction to the proposal yet.

Vietnam is the world's second largest rice exporter. India is the third-largest rice exporting country followed by the United States in fourth place. Asia accounts for about 90% of global rice consumption.

"Thailand, being the largest exporter of rice, would be in a position to take advantage of the current situation [of soaring rice prices]," said Divya Reddy, an analyst at the Eurasia Group. "It makes sense for them to take the lead."

However, "I don't see it working successfully in the near term," Reddy said about the proposal to form a rice cartel. "There would be huge incentive for countries to take their own measures to deal with the problem [of soaring prices]."

Bykere of RGE Monitor pointed out that there are political disagreements and different political structures in Southeast Asia that might make it difficult to form a cartel.

For example, Thailand is a constitutional monarchy, Burma is ruled by a brutal military junta, Vietnam and Laos are communist states, and Cambodia is a young multi-party democracy.

"More importantly, their economic policies are different," Bykere said. "There is very low probability of these countries agreeing."

Also, Thailand and Vietnam are doing better economically than their much poorer neighbors Burma, Cambodia and Laos. A rice cartel would differ from OPEC, because OPEC countries have certain oil reserves, while rice harvests depend on weather conditions, Bykere said.

A cartel would distort rice prices, thereby hurting a big number of consumers both in the rice-exporting countries and globally, Bykere.

"If they set high prices, it would only benefit the farmers in these five countries," Bykere said. "Consumers within and outside the countries would suffer from high rice prices. All the other Asian and African countries will oppose it."

The Philippines, the world's biggest rice importer, has objected to the idea of a rice cartel, with Edgardo Angara, chairman of its senate committee on agriculture, saying that a cartel "will create an oligopoly and it's against humanity," the BBC reported Friday.

The president Thailand's Rice Exporters Association has also criticized the proposal, saying that "you cannot control farmers growing or not growing rice. It's not like oil."

The USA Rice Federation, an advocacy group for the rice industry, didn't have an immediate comment on Thailand's idea of forming a rice cartel in Southeast Asia.

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